Suppose that a monopolistically competitive firm decides to raise its price. The theory of monopolistic competition predicts that

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In a monopolistically competitive market, each firm has some degree of market power, meaning that it can raise its price without losing all of its customers. However, because there are many substitutes available, some customers will switch to other brands if the price of one brand increases too much. Therefore, a monopolistically competitive firm that raises its price can expect to lose some, but not all of its customers. This means that the firm's total revenue will decrease (because it sells fewer units of its product), but its per-unit profit may increase (because it is charging a higher price). Overall, the effect on profits depends on the shape of the firm's demand curve and its cost structure.

Suppose That a Monopolistically Competitive Firm Decides to Raise Its